McDermott Reports Fourth Quarter and Full Year 2013 Financial Results

McDermott Reports Fourth Quarter and Full Year 2013 Financial Results
Solid Backlog, Business Improvement Initiatives, and Focus on Subsea
Opportunities Expected to Stabilize Business and Position the Company for
Long-Term Growth
Company to Host Conference Call and Webcast Today at 4:00 pm CT
Business Wire
HOUSTON -- March 3, 2014
McDermott International, Inc. (NYSE: MDR) (“McDermott” or the “Company”) today
announced financial results for the fourth quarter and full year ended
December 31, 2013. The Company reported a fourth quarter net loss of $324
million or $1.37 per fully diluted share, and an operating loss of $316
million, of which approximately 80% relates to cash outlays that were made
prior to the fourth quarter. The Company reported fourth quarter revenues of
$517 million, a decrease of 48% percent compared to $996 million in the
corresponding period of 2012. The Company reported fourth quarter 2012 net
income of $41 million, or $0.17 per fully diluted share, and operating income
of $77 million.
For the year ended December 31, 2013, the Company reported revenues of $2.7
billion, compared to $3.6 billion for the year ended December 31, 2012. The
Company reported an operating loss of $465 million in the year ended December
31, 2013 compared to operating income of $319 million in the year ended
December 31, 2012.
Of the $316 million fourth quarter operating loss, approximately $134 million
was related to commercial issues, approximately $80 million was related to
operational matters, approximately $86 million was related to asset
impairments and approximately $16 million was related to restructuring charges
in the Atlantic Segment and a corporate reorganization.
On December 16, 2013, David Dickson assumed the role of President and Chief
Executive Officer and was concurrently appointed to McDermott’s Board of
Directors. Mr. Dickson, age 46, joined the Company on October 31, 2013 as
Executive Vice President and Chief Operating Officer. He has approximately 24
years of offshore oilfield engineering and construction business experience,
including 11 years of experience with Technip S.A. and its subsidiaries. From
September 2008 until October 2013, he served as President of Technip USA Inc.,
with oversight responsibilities for all of Technip’s North American
operations.
“During the fourth quarter, we worked through a number of legacy issues,
reviewed our backlog in light of new developments and recorded a number of
charges, most of which related to prior period cash outlays,” said Mr.
Dickson. “Although the Company’s fourth quarter results are disappointing, we
are taking the right steps to stabilize the business and drive long-term
growth, profitability and shareholder value creation as a leading global
offshore and subsea contractor.
McDermott is at a strategic inflection point, and we are making good progress
toward improving our internal processes and risk management. We secured a new
financing commitment to enhance our financial flexibility and are increasing
operational efficiency through a new organizational design, while taking the
necessary steps to deliver improved and predictable execution. Driving
profitability and cash flow remains our top priority, and we are reevaluating
our capital expenditures, reducing our cost structure and exploring the
divestiture of non-core assets to achieve that goal.”
Dickson added, “McDermott is a strong company with a dynamic and talented team
in place to ensure that our organization is positioned to succeed going
forward. We are encouraged by a number of important customer wins during the
quarter, along with an attractive pipeline of potential projects. McDermott
delivers tremendous value to its customers, and we look forward to
capitalizing on the Company’s strategic advantages in the marketplace to
create value for our shareholders.”
Fourth Quarter Project Update
Of the approximately $134 million of operating losses related to commercial
issues, key drivers included changes to the Company’s recovery estimates on
projects with unapproved change orders or claims previously submitted to
customers. In most cases, the work was performed and cost was incurred prior
to the fourth quarter. Specifically, the Company recorded a $91 million loss
related to unapproved claims on two projects in the quarter.
Of the approximately $80 million of operating losses related to operational
matters, approximately $50 million was attributable to our typical sales,
general and administrative costs. In addition, a key driver was a $28 million
loss related to a deepwater pipelay project offshore Malaysia, primarily due
to mechanical downtime on one of its vessels. The vessel has since resumed
work, and the customer reached first oil last month. The project is expected
to be completed in March 2014.
The Company also revised its expectations with respect to the Papa Terra
project offshore Brazil, primarily due to weather and operating conditions
that prevented the Company from making sufficient progress during the quarter.
The Company now expects the project to be approximately breakeven. As of
today, the platform is installed and the marine activities are nearly
complete. The Company is in the process of demobilizing the equipment and
vessels from the field and expects to be substantially complete with the
project later this month.
The Ichthys subsea field development project, the largest subsea project in
the industry at its time of award, is on schedule. Over the last quarter, the
Company has conducted an extensive review of the project with experienced
individuals who have joined the Company and has concluded that the project is
expected to be completed on time and profitably. Detailed engineering is
substantially complete and fabrication is well underway to support the
offshore installation program, which is scheduled to commence in the second
half of 2014.
Contract Backlog Summary
As of December 31, 2013, the Company’s backlog was approximately $4.8 billion,
compared to $4.6 billion at September 30, 2013. Of the December 31, 2013
backlog, approximately 59% related to offshore operations and approximately
41% related to subsea operations. Bookings during the fourth quarter totaled
$737 million and included EPCI work in the Middle East, a transportation and
installation contract in Brunei and a charter of the North Ocean 102 vessel in
Brazil.
At the end of the fourth quarter, the Company had $3.6 billion in bids and
change orders outstanding. The Company is targeting to bid over $16 billion in
new projects over the next five quarters. In total, the Company’s revenue
pipeline was $24 billion as of December 31, 2013.
Business Improvement Initiatives
The Company is implementing a new organizational design and will focus on:
strengthening the balance sheet and instilling financial discipline; aligning
with customers and building strong customer relationships; improving its cost
structure and increasing competitiveness; and building a performance-oriented
and highly accountable culture.
The new organizational design will orient the Company around its offshore and
subsea operations. Scott Cummins, who has more than 25 years of experience at
McDermott in various operational and management roles, will lead the offshore
business. Tony Duncan, who joined McDermott last year with nearly 30 years of
industry experience, including 15 years of management experience with tier-one
marine contractors, will lead the Company’s subsea business.
These business leaders will be responsible for the strategic direction of the
business lines and for aligning the Company with customer needs. They will
also provide oversight and project execution support for the Company’s
regional operations. The business leaders will be accountable for their
operating and financial results and for efficiently allocating assets among
the regional operations. This new global structure is designed to leverage
McDermott’s strengths as a worldwide contractor to improve consistency and
allow more efficient flow across the organization.
The offshore and subsea businesses will be supported by teams from four
regions: Americas, North Sea and Africa, Asia Pacific and the Middle East. The
regions will have P&L responsibility and will be accountable for business
acquisition process, execution and cost management. They will also manage the
Company’s shared services of operating and administrative functions required
by both business lines.
The Company is also reevaluating and deferring capital expenditures to improve
strategic alignment, to reduce its cost structure, while it also plans to
divest non-core assets.
Balance Sheet Summary
As of December 31, 2013, McDermott reported total assets of approximately $2.8
billion. Included in this amount is approximately $150 million in cash and
cash equivalents, restricted cash and investments. As of Friday, February 28,
2014, the Company has approximately $335 million in cash and cash equivalents,
restricted cash and investments.
The Company’s $950 million credit facility had no funded borrowings as of
December 31, 2013. Since year-end, the Company has drawn approximately $250
million on the facility and has repaid $32 million to retire maturing debt
related to the North Ocean 102 vessel.
The Company also announced today that it has entered into a commitment letter
with Goldman Sachs that provides for $950 million aggregate principal amount
of new senior secured financing, which is expected to be available while it
negotiates an amendment to its existing credit facility. The financing
contemplated in the commitment letter would have a term of five years and the
proceeds would provide funded capacity for letters of credit, as well as
funding for working capital and general corporate purposes.
Upon completion of an amendment to the existing credit facility, the Company
expects to terminate the new financing commitment. If the existing credit
facility is not amended as contemplated, the Company believes that the new
financing commitment, taken together with projected cash flows from
operations, would be sufficient to fund the Company’s liquidity and letter of
credit requirements for more than a year.
During the fourth quarter, the Company’s total debt position decreased to $89
million, due to a quarterly principal payment on its North Ocean 102 loan
facility. In addition, total equity was $1.4 billion, or approximately 50% of
total assets.
Outlook
The Company is withdrawing prior financial guidance, and suspending guidance
for the foreseeable future, while the Company is implementing its
organizational changes and closing out legacy projects.
Conference Call
McDermott has scheduled a conference call and webcast related to its fourth
quarter 2013 results today at 4:00 p.m. U.S. Central Standard Time. Interested
parties may listen over the Internet through a link posted in the Investor
Relations section of the Company’s Web site. The replay will also be available
on the Company’s Web site following the end of the call.
About the Company
McDermott is a leading provider of integrated engineering, procurement,
construction and installation (EPCI) services for upstream field developments
worldwide. The Company delivers fixed and floating production facilities,
pipelines and subsea systems from concept to commissioning for complex
Offshore and Subsea oil and gas projects to help oil companies safely produce
and transport hydrocarbons.Our clients include national and major energy
companies.Operating in more than 20 countries across the world,our locally
focused and globally integrated resources include approximately 14,000
employees, a diversified fleet of specialty marine construction vessels,
fabrication facilities and engineering offices. We are renowned for our
extensive knowledge and experience, technological advancements, performance
records, superior safety and commitment to deliver. McDermott has served the
energy industry since 1923 and is listed on the New York Stock Exchange.
To learn more, please visit our website at www.mcdermott.com
Forward-Looking Statements
In accordance with the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995, McDermott cautions that statements in this
press release which are forward-looking, and provide other than historical
information, involve risks, contingencies and uncertainties that may impact
McDermott's actual results of operations. These forward-looking statements
include, but are not limited to, statements about backlog, bids outstanding,
and projects McDermott expects to bid, to the extent such may be viewed as
indicators of future revenues or profitability, optimism about the future of
McDermott and its foundation for the subsea market, expectations on the timing
of the execution and completion of existing projects, the Company’s steps to
stabilize the business and drive long-term growth, profitability and
shareholder value creation, improvement to internal process and risk
management and the Company’s plans with respect to its business improvement
initiatives. Although we believe that the expectations reflected in those
forward-looking statements are reasonable, we can give no assurance that those
expectations will prove to have been correct. Those statements are made by
using various underlying assumptions and are subject to numerous risks,
contingencies and uncertainties, including, among others: adverse changes in
the markets in which we operate or credit markets, our inability to
successfully execute on contracts in backlog, changes in project design or
schedules, the availability of qualified personnel, changes in the scope or
timing of contracts, and contract cancellations, change orders and other
modifications. If one or more of these risks materialize, or if underlying
assumptions prove incorrect, actual results may vary materially from those
expected. You should not place undue reliance on forward-looking statements.
For a more complete discussion of these and other risk factors, please see
McDermott's annual and quarterly filings with the Securities and Exchange
Commission, including its annual report on Form 10-K for the year ended
December 31, 2013 and subsequent quarterly reports on Form 10-Q. This news
release reflects management's views as of the date hereof. Except to the
extent required by applicable law, McDermott undertakes no obligation to
update or revise any forward-looking statement.
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
(In thousands)
Revenues $ 517,338 $ 995,953 $ 2,658,932 $ 3,641,624
Costs and
Expenses:
Cost of 678,938 853,047 2,801,426 3,100,009
operations
Selling, general
and 49,885 60,047 201,171 205,974
administrative
expenses
Loss on asset 84,482 - 84,482 -
impairments
(Gain) loss on 292 (123 ) (15,200 ) (405 )
asset disposals
Restructuring 16,225 - 35,727 -
charges
Total costs and 829,822 912,971 3,107,606 3,305,578
expenses
Equity in Loss of
Unconsolidated (3,149 ) (5,693 ) (16,116 ) (16,719 )
Affiliates
Operating Income (315,633 ) 77,289 (464,790 ) 319,327
(Loss)
Other Income
(Expense):
Interest income – 220 441 1,353 4,656
net
Gain on foreign 6,034 8,956 16,872 20,142
currency – net
Other expense – (4,152 ) (707 ) (2,339 ) (995 )
net
Total Other 2,102 8,690 15,886 23,803
Income
Income (loss)
from continuing
operations before
provision for
income taxes, (313,531 ) 85,979 (448,904 ) 343,130
discontinued
operations and
noncontrolling
interest
Provision for 3,558 42,200 49,051 129,204
Income Taxes
Income (loss)
from continuing
operations before
discontinued (317,089 ) 43,779 (497,955 ) 213,926
operations and
noncontrolling
interest
Gain (loss) on
disposal of - - - 257
discontinued
operations
Income from
discontinued - - - 3,240
operations, net
of tax
Total income from
discontinued - - - 3,497
operations, net
of tax
Net Income (Loss) (317,089 ) 43,779 (497,955 ) 217,423
Less: net income
attributable to 6,884 3,235 18,958 10,770
noncontrolling
interests
Net Income (Loss)
Attributable to
McDermott $ (323,973 ) $ 40,544 $ (516,913 ) $ 206,653
International,
Inc.
McDERMOTT INTERNATIONAL, INC.
EARNINGS PER SHARE COMPUTATION
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
(In thousands, except share and per share amounts)
Income (loss)
from
continuing
operations $ (323,973 ) $ 40,544 $ (516,913 ) $ 203,156
less
noncontrolling
interests
Loss from
discontinued - - - 3,497
operations,
net of tax
Net income
(loss)
attributable $ (323,973 ) $ 40,544 $ (516,913 ) $ 206,653
to McDermott
International,
Inc.
Weighted
average common 236,952,496 235,847,019 236,514,584 235,638,422
shares
Effect of
dilutive
securities:
Stock options,
restricted
stock and - 1,971,339 - 1,981,266
restricted
stock units
Adjusted
weighted
average common
shares and
assumed 236,952,496 237,818,358 236,514,584 237,619,688
exercises of
stock options
and vesting of
stock awards
Basic earnings
per share :
Income (loss)
from
continuing
operations (1.37 ) 0.17 (2.19 ) 0.86
less
noncontrolling
interests
Income (loss)
from
discontinued - - - 0.01
operations,
net of tax
Net Income. (1.37 ) 0.17 (2.19 ) 0.88
Diluted
earnings per
share:
Income (loss)
from
continuing
operations, (1.37 ) 0.17 (2.19 ) 0.86
less
noncontrolling
interests
Income (loss)
from
discontinued - - - 0.01
operations,
net of tax
Net income (1.37 ) 0.17 (2.19 ) 0.87
(Loss).
SUPPLEMENTARY DATA
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
(In thousands)
Drydock $ 4,288 $ 3,939 $ 18,467 $ 25,545
amortization
Depreciation &
amortization $ 24,466 $ 20,404 $ 84,580 $ 86,440
expense
Capital $ 58,565 $ 107,026 $ 283,962 $ 286,310
expenditures
Backlog $ 4,802,223 $ 5,067,164 $ 4,802,223 $ 5,067,164
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2013 2012
(In thousands, except
share and per share
amounts)
Assets
Current Assets:
Cash and cash equivalents $ 118,702 $ 640,147
Restricted cash and cash equivalents 23,652 18,116
Investments - 19,242
Accounts receivable--trade, net 381,858 428,800
Accounts receivable--other 89,273 75,461
Contracts in progress 425,986 560,154
Deferred income taxes 7,091 9,765
Assets held for sale 1,396 2,679
Other current assets 32,242 35,425
Total Current Assets 1,080,200 1,789,789
Property, Plant and Equipment 2,367,686 2,115,176
Less accumulated depreciation (889,009 ) (833,385 )
Net Property, Plant and Equipment 1,478,677 1,281,791
Assets Held for Sale 12,243 26,758
Investments 13,511 26,750
Goodwill - 41,202
Investments in Unconsolidated Affiliates 50,536 37,435
Other Assets 172,204 129,902
Total Assets $ 2,807,371 $ 3,333,627
Liabilities and Equity
Current Liabilities:
Notes payable and current maturities of $ 39,543 $ 14,146
long-term debt
Accounts payable 398,739 400,007
Accrued liabilities 138,482 108,963
Accrued employee-related benefits 36,933 57,391
Accrued contract costs 189,809 203,064
Advance billings on contracts 278,929 241,696
Deferred income taxes 17,892 10,758
Income taxes payable 20,657 76,986
Total Current Liabilities 1,120,984 1,113,011
Long-Term Debt 49,019 88,562
Self-Insurance 20,531 22,641
Pension Liability 15,681 25,069
Income taxes payable 56,042 55,857
Other Liabilities 104,770 76,382
Commitments and Contingencies
Stockholders’ Equity:
Common stock, par value $1.00 per share,
authorized 400,000,000 shares; issued and
outstanding 244,271,365 and 243,442,156 244,271 243,442
shares at December 31, 2013 and December
31, 2012, respectively
Capital in excess of par value 1,414,457 1,391,271
Retained earnings (71,157 ) 445,756
Treasury stock, at cost, 7,130,294 and
7,574,903 shares at December 31, 2013 and (97,926 ) (98,725 )
December 31, 2012, respectively
Accumulated other comprehensive loss (140,131 ) (94,413 )
Stockholders’ Equity--McDermott 1,349,514 1,887,331
International, Inc.
Noncontrolling Interests 90,830 64,774
Total Equity 1,440,344 1,952,105
Total Liabilities and Equity $ 2,807,371 $ 3,333,627
McDERMOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2013 2012 2011
(In thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (497,955 ) $ 217,423 $ 151,355
(Income) loss from
discontinued operations, - (3,497 ) 12,812
net of tax
Income (loss) from (497,955 ) 213,926 164,167
continuing operations
Non-cash items included in
net income:
Depreciation and 84,580 86,440 82,391
amortization
Drydock amortization 18,467 25,545 24,567
Equity in loss of 16,116 16,719 4,985
unconsolidated affiliates
Gains on asset disposals (15,200 ) (405 ) (8,478 )
Loss on asset impairments 84,482 - 5,488
Provision for deferred (5,359 ) 3,847 1,650
taxes
Stock-based compensation 21,100 15,369 17,825
charges
Restructuring charges 18,044 - -
Other non-cash items (3,463 ) 8,367 18,096
Changes in assets and
liabilities, net of effects
from acquisitions:
Accounts receivable 30,156 (5,920 ) (152,840 )
Net contracts in progress
and advance billings on 171,397 (351,604 ) (151,157 )
contracts
Accounts payable (17,493 ) 84,430 71,291
Accrued and other current (22,155 ) 36,922 56,049
liabilities
Income taxes (54,431 ) 22,832 17,138
Pension liability and
accrued postretirement and (30,828 ) 36,897 (83,263 )
employee benefits
Other (54,069 ) 16,419 29,537
NET CASH PROVIDED BY (USED
IN) OPERATING (256,611 ) 209,784 97,446
ACTIVITIES--CONTINUING
OPERATIONS
NET CASH USED IN OPERATING
ACTIVITIES--DISCONTINUED - - (1,426 )
OPERATIONS
TOTAL CASH PROVIDED BY (256,611 ) 209,784 96,020
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property, (283,962 ) (286,310 ) (282,621 )
plant and equipment
(Increase) decrease in
restricted cash and cash (5,536 ) 3,846 175,899
equivalents
Purchases of
available-for-sale (10,535 ) (95,964 ) (546,822 )
securities
Sales and maturities of
available-for-sale 43,959 191,298 693,424
securities
Investments in (9,354 ) (5,084 ) (1,058 )
unconsolidated affiliates
Proceeds from asset
dispositions and other 34,273 3,291 9,943
investing activities
NET CASH PROVIDED BY (USED
IN) INVESTING (231,155 ) (188,923 ) 48,765
ACTIVITIES--CONTINUING
OPERATIONS
NET CASH PROVIDED BY
INVESTING - 60,671 -
ACTIVITIES--DISCONTINUED
OPERATIONS
TOTAL CASH PROVIDED BY
(USED IN) INVESTING (231,155 ) (128,252 ) 48,765
ACTIVITIES
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from debt 296,000 19,034 46,987
Payment of debt (310,146 ) (10,061 ) (8,606 )
Purchase of treasury shares (1,106 ) (2,898 ) (10,092 )
Distributions to (13,743 ) (20,135 ) (2,524 )
noncontrolling interests
Debt issuance costs and (4,837 ) 267 (4,476 )
other financing activities
NET CASH PROVIDED BY (USED
IN) FINANCING (33,832 ) (13,793 ) 21,289
ACTIVITIES--CONTINUING
OPERATIONS
NET CASH PROVIDED BY
FINANCING - - 1,426
ACTIVITIES--DISCONTINUED
OPERATIONS
TOTAL CASH PROVIDED BY
(USED IN) FINANCING (33,832 ) (13,793 ) 22,715
ACTIVITIES
EFFECTS OF EXCHANGE RATE 153 1,554 (109 )
CHANGES ON CASH
NET INCREASE (DECREASE) IN (521,445 ) 69,293 167,391
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS 640,147 570,854 403,463
AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS $ 118,702 $ 640,147 $ 570,854
AT END OF PERIOD
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid (received) during
the period for:
Income taxes (net of $ 105,444 $ 89,451 $ 67,970
refunds)
Contact:
McDermott International, Inc.
Investors & Financial Media
Steve Oldham, +1.281.870.5147
soldham@mcdermott.com
or
Trade, General & Local Media
Louise Denly, +1.281.870.5025
ldenly@mcdermott.com